Subaru to cope with high costs of green cars by raising brand value

Because Subaru is a “small company,” it will have to raise its “brand value” in order to keep up with the high costs of producing cleaner cars, according to Fuji Heavy President Yasuyuki Yoshinaga in the June 5 interview by Japan's Nihon Keizai business newspaper. Subaru’s sales in the U.S. is on a fast pace. Its global boss says that it hopes to take advantage of this popularity to offset the cost of green technologies.

Yoshinaga didn’t actually call for higher sticker prices. Rather, he said that he wants to increase its “brand value” as the profit margin goes down because of related costs that have risen higher than anticipated. He explained that the brand isn’t like bigger automakers and it doesn’t benefit as much from the economy of scale so it will have to make up for the additional costs.

He said that development costs have been driven higher by research into hybrid drivetrains – a preferred way to cope with increasingly tougher emission standards. He revealed that the company is working to be compliant with the zero-emission standards that California will impose in 2018. It aims that by then, it will have already launched a plug-in hybrid for North America.

Subaru’s lineup has plenty of midsize, all-wheel-drive vehicles and it is being pressured to boost its fuel economy throughout its range. As a result, it has been focused on investing in new powertrains. Subaru’s overhaul includes a plan to upgrade all of its gasoline engines to direct injection beginning in 2016. This technology will be offered as standard equipment in a next-generation boxer engine that will soon be produced.

In addition, the automaker will add cylinder deactivation and lean combustion cycles by 2020. Its r&d spending will then have to go up 16% to ¥97 billion ($780.2 million) in the current fiscal year, which ends March 31, 2016, according to the company’s projections. The r&d outlays increased by 39% in the year that recently ended.

The automaker estimates that its r&d spending will increase to 3.2% of revenues in the present fiscal year, from 2.9% last fiscal year and 2.4% the year before that. The automaker is working hard to have record U.S. sales for the seventh calendar year. It is increasing its production output in North America (its largest market) four years earlier than scheduled.

Yoshinaga shared this plan while talking about its record revenue and profits for the fiscal year that ended March 31. The demand in North America has been surging. This market currently makes up 62% of its worldwide volume.

That’s why it has to raise the output of its plant in Lafayette, Ind. – its lone assembly factory outside of Japan. The automaker predicts that in its current fiscal year, it will sell 600,000 units in North America.

One year ago, its goal was to sell this much in its market in the U.S. and Canada during the fiscal year ending March 31, 2021. For this fiscal year, it predicts U.S.-only sales to be at 554,000 units.